EUR/USD: Weak Inflation Weakens Dollar

EUR/USD has been moving sideways in the 1.0100-1.0270 channel for more than three weeks. Attempts to break through its upper or lower border ended in failure each time. Even very strong data on the US labor market, which came out in the first week of August, did not help the dollar. Recall that unemployment in the US has remained at 3.6% since March, which is a very good indicator. And it became even lower in July, 3.5%. And such an important indicator as NFP, the number of new jobs created outside the agricultural sector, with a forecast of 250K, actually reached 528K. And this despite the fact that it was 372K a month earlier.

The sideways movement continued until Wednesday, August 10, when the pair moved sharply higher, turning the 1.0270 level from resistance to support. And the point here is not the strengthening of the euro, but the weakening of the dollar. The position of the American currency deteriorated after the release of the US inflation report. The consumer price index (CPI) with a forecast of 0.2% in July turned out to be at the level of 0.0% (1.3% a month earlier). It decreased from 9.1% to 8.5% (forecast 8.7%) on an annualized basis. Instead of the expected 0.5%, the base CPI grew by only 0.3% in July (0.7% a month earlier).

All these figures indicate clearly that inflation, the war against which the Fed launched, is declining. Of course, this is not a final victory, but the success of the American Central Bank is obvious. Therefore, it may soften its monetary policy somewhat and not raise interest rates as aggressively as it has done in the past two months.

Speaking at the end of the July meeting of the FOMC (Federal Open Market Committee), Fed Chairman Jerome Powell tried to convince everyone that the regulator is still hawkish. And that, if necessary, the Fed is ready to accelerate the pace of rate hikes. However, even then the markets did not believe Powell and reacted by turning towards the stock market. And now the inflation data has become another argument in favor of the fact that the FOMC may raise the rate not by 0.75%, but only by 0.50% in September, stop raising rates altogether in November, and return to the quantitative easing program altogether in 2023.

Of course, this is just a forecast so far. More precisely, not even a forecast, but just expectations. But it was them that continued to push stock indices S&P500, Dow Jones, Nasdaq up, and did not allow the EUR/USD pair to fall again to the parity of 1.0000. Not yet. EUR/USD ended the past week at 1.0260, returning to the medium-term sideways channel of 1.0100-1.0270. 45% of experts vote for the fact that it will go further down, and maybe even break through the lower border of the channel. 35% show it the way to the north and 20% - to the east. As for the oscillators on D1, 40% are colored red, 40% are green, and 20% are neutral gray. There is complete balance among the trend indicators: 50% look south and 50% look north.

The nearest support for the pair is the level 1.0220, then there are zones 1.01500-1.0200 and 1.0095-1.0120. The bears' main target is, of course, 1.0000. If this key level is broken, the bears will target the July 14 low at 0.9950, even lower is the strong 2002 support/resistance zone of 0.9900-0.9930. The next serious task of the bulls will be a breakout of the upper border of the channel 1.0270, then there is a high of the past week in the area of 1.0364-1.0368, the next target is a return to the zone 1.0400-1.0450, then there are zones 1.0520-1.0600 and 1.0650-1.0750.

The coming week will be full of all sorts of economic statistics. Thus, the ZEW Economic Sentiment Index in Germany will be published on Tuesday, August 16. there will be preliminary data on Eurozone GDP (Q2) on Wednesday, August 17, as well as data on retail sales in the US. The minutes of the last FOMC meeting will be published on the same day. We are waiting for data on European inflation (CPI) on Thursday, August 18, as well as on the labor market, home sales and manufacturing activity in the United States.

GBP/USD: GDP Falls, Forecasts Remain Gloomy

GBP/USD reacted to the US inflation data released on Wednesday, August 10, with a jump north by almost 200 points to the height of 1.2276. True, it failed to stay there, and the last chord sounded at around 1.2135. Even the global rise in risk sentiment did not help the pound. The main reason is the gloomy economic prospects for the UK economy and no less gloomy forecasts of the Bank of England. UK GDP data for both June and Q2 were released on Friday, August 12. The June contraction turned out to be less than expected: -0.6%, while the forecast was -1.2%. The fall in GDP in April-June amounted to -0.1% against the expected -0.2% and +0.8% in Q1. Accordingly, the annual figure was 2.9% against the forecasted 2.8% and 8.7% in Q1. All these data turned out to be slightly better than expected. But, despite this, the slide of the economy into recession is an obvious fact, and the only question that remains is the depth and duration of such a fall.

According to 55% of analysts, the last week did not bring anything good to the pound, and therefore the pair will continue its fall. The opposite point of view is also held by only 15% of experts, the remaining 30% remain neutral. The readings of the indicators on D1 are as follows. As for the trend indicators, the ratio is 85% to 15% in favor of the red ones. Only 25% of the oscillators side with the bears, 35% indicate growth, 40% have taken a neutral position.

The nearest support is located at 1.2100, followed by zones and levels 1.2045-1.2065, 1.2000, 1.1875-1.1925 and 1.1800. Below is July 14 low of 1.1759, then 1.1650, 1.1535 and March 2020 lows in the zone 1.1400-1.1450. As for the bulls, they will meet resistance in the zones and at the levels 1.2160-1.2200, 1.2275-1.2325 and 1.2400-1.2430. The main event of the coming week is likely to be the release of UK inflation data (CPI) on Wednesday August 17. Also noteworthy on the calendar is Tuesday August 16, when UK labor market data comes in, and Friday August 19, when July retail sales in the country become known.

USD/JPY: Yen: Hope for Better but a Very Distant Future

The dynamics of USD/JPY last week was similar to the dynamics of EUR/USD reversed. (This is logical, since here the dollar moves from the position of the base currency to the position of the quote currency). Having started on Monday, August 8 from 135.00, the pair went down sharply on Wednesday, August 10 on the basis of US inflation data, reached the local bottom at 131.72 on August 11, then reversed and finished at 133.45. Those who are ready to open long-term positions will probably be interested in the forecast of analysts from Westpac, one of the largest banks in Australia, one of the Big Four, and the second largest bank in New Zealand. They believe that the current level of USD/JPY can be justified. Japan is favored by economic growth in Asia and the continuing downward trend in energy prices. And given the possible easing of the monetary policy of the US Federal Reserve, according to Westpac strategists, the pair may fall to 123.00 by the end of 2023.

The end of 2023 is quite far away, more than 16 months. As for the forecast for the near future, the opinions of experts are divided as follows. 45% of analysts expect the pair to rise, another 25% hope for the strengthening of the yen and the continuation of the downtrend, the remaining 30% speak of a side corridor. The readings of indicators on D1 give a bit different picture. Trend indicators have a ratio of 65% to 35% in favor of the red ones. Oscillators are 15% north, 40% south, and the remaining 45% east.

Supports for the pair are located at the levels and in the zones 133.00, 132.50-132.85, 131.75-132.00, 131.00, 130.40, 128.60 and 126.35-127.00. Resistances are 134.00, 134.40-134.60, 135.30-135.60, 136.35-137.00, 137.45, 137.90-138.40, 138.50-139.00, and finally the July 14 high at 139.38. As for the events of the upcoming week, it is worth paying attention to Monday, August 15, when the preliminary volume of Japan's GDP for Q2 2022 will be known. According to forecasts, it may grow from negative -0.1% to +0.6%. This is the main macroeconomic indicator of market activity, which assesses the rate of growth or decline of the country's economy. Its growth is usually a positive, bullish, factor for the national currency.

Cryptocurrencies: August 26: a Terrible Day on the Calendar

The crypto community continues to wonder if the crypto market has bottomed out or if a new price collapse awaits us. Before moving on to the next batch of forecasts, let's start with some statistics. So, the price of bitcoin fell to $17,597 on June 18, which is in line with the level of December 2020 and almost 75% below the all-time high of $68,918. If we measure from the beginning of 2022, the main cryptocurrency started at $47,572 on January 01, and its fall was 63% by June 18. After that, BTC/USD crept up slowly, demonstrating a series of rising lows and highs over 8 weeks. However, as the chart shows, bearish resistance sharply increased above $24,000 and the upward momentum began to fade rapidly. So, the weekly maximum was at a height of $24.264 on July 20, $24.435 on July 29, and, finally, $24.891 on August 11. That is, growth was only about 2.5% over the past 3 weeks. 

At the time of this writing, Friday evening, August 12, the total capitalization of the crypto market is $1.155 trillion ($1.089 trillion a week ago), and the Crypto Fear & Greed Index is still in the fear zone, at a level of 42 points (31 weeks ago).  BTC/USD is trading at $24,100, about 50% lower than at the beginning of the year.

Despite this price reduction, the number of addresses with a balance of 1 BTC has grown by 9.4% since the beginning of 2022. The indicator reached a historical high of 891.009 at the end of July. The situation is even more pronounced with addresses with a balance of more than 1 ETH, the number of which has grown by 15.7% over seven months. This trend indicates the desire of investors to accumulate. For example, according to the analytical resource The Balance, 39% of US investors began to invest more in cryptocurrencies, wanting to keep their savings.

Is it worth buying the flagship cryptocurrency now? Bloomberg Intelligence Senior Strategist Mike McGlone believes bitcoin is currently trading at a significant discount in a sustained bull market. “The first cryptocurrency hit an all-time low in July compared to its 100-week moving average,” the expert explained.

Mark Yusko, managing partner of Morgan Creek Digital, also says that the current price of the first cryptocurrency is unfair, and should be around $30,000. And according to Anthony Scaramucci, CEO of SkyBridge Capital, the “fair value” of BTC should now be around $40,000. PlanB, the creator of the once-popular Stock-to-Flow model, has the bar even higher at $55,000.

All these influencers have their own models and their own justifications. However, one must keep in mind that “fair price” is a rather relative concept. And perhaps the fairest is the current market value. That is, how much sellers are ready to sell now, and buyers are ready to buy a particular asset for.

Some on-chain indicators signaled the passing of the capitulation period and an improvement in investor sentiment in July. This is stated in an analytical report by ForkLog. Against the background of consolidation and the subsequent smooth recovery of the price of bitcoin, the Puell Multiple indicator began to exit the deep oversold zone. The Net Unrealized Profit/Loss (NUPL) metric has moved into the hope/fear zone and is heading towards optimism. The MVRV Z-Score crossed the upper boundary of the deep oversold zone at 0.1 on July 28. This is another signal about the passage of the "bottom" of the market cycle.

According to Sam Bankman-Fried, CEO of the FTX crypto exchange, crypto winter is probably coming to an end, and spring is just around the corner. “I think we've seen the worst already,” said the multi-billionaire, better known as SBF. “Some bitcoin miners might have some more problems, but I think we are talking about a few hundred million dollars in total pain, not billions.” However, SBF’s crypto spring forecast was not without a “but”: “If Nasdaq is left to fall another 25%, and if Fed interest rates do rise to 7%, and if we are in recession for two and a half years […] , bitcoin could fall to $15,000 or $10,000,” said the CEO of FTX.

Mike McGlone of Bloomberg Intelligence also looks cautiously towards the US Central Bank. The analyst emphasizes the key role of the US Federal Reserve, which is pursuing aggressive rate hikes in 2022. This could potentially create barriers to risky assets, including cryptocurrencies and stocks. At the same time, Mike McGlone urges not to try to fight the Fed.

Risky assets will have to pass the next serious test at the end of August. An analyst with the nickname Guy noted that the release of economic data expected this month could have a significant impact on the crypto markets. According to him, 3 important factors can interrupt the current uptrend. The first is the US Personal Consumption Expenditure Index (PCE). “PCE data for July will be released on August 26. Given that PCE is the Fed's favorite inflation indicator, a high value could lead to markets collapse in anticipation of an aggressive rate hike."

The second factor is the US gross domestic product for the second quarter: “Revised GDP data for the second quarter will also be published on August 26. Pay attention to them. If these figures are revised upwards, that is, in fact, the US will no longer be in a technical recession, this may push the Fed to raise interest rates even more.”

And finally, the third factor is the annual economic symposium in Jackson Hole, where US financial authorities discuss global economic problems. The symposium will take place from August 25 to 27, which coincides with the release dates of the two above-mentioned statistics. These factors could influence the decisions of Fed Chairman Jerome Powell, which will have a cascading effect on the crypto market. “If the statistics turn out to be unimportant, and Powell is not in the best mood, then the crypto market will have a bad time. Although there are chances that he will keep his thoughts to himself long enough for the cryptocurrency market to continue its recovery rally.”

A recent Cumberland Institutional Investor Survey found that the majority of respondents expect bitcoin to rise to $32,000 by the end of the year. Mike Novogratz, CEO of Galaxy Digital investment company, named a slightly smaller figure. In his opinion, the coin is unlikely to rise above the $30,000 level in the near future. The billionaire himself “would be happy” if BTC stopped for a while in the range of $20,000 to $30,000. The most optimistic forecast this time was given by a popular analyst under the nickname InvestAnswers. The American cryptocurrency exchange Coinbase and the largest investment company BlackRock entered into a partnership agreement last week. BlackRock manages over $10 trillion in assets at the moment. Based on this, InvestAnswers believes that the influx of funds in cryptocurrencies from BlackRock clients could push the BTC price to $773,000.

“If BlackRock places 0.5% of its assets in BTC, then, taking into account the leverage, the capitalization of bitcoin will increase by $1.05 trillion, which means the price will rise to $75,000. And this, I think, is very likely. If BlackRock clients stake 1% of their holdings, then the capitalization will increase by $2.1 trillion, and bitcoin will reach $173,000. And if BlackRock places 5% of its assets, the bitcoin rate will reach $773,000. Although I think this is too aggressive, it may be possible within 3-5 years,” the analyst wrote. (It should be noted here that InvestAnswers calculations are correct only for investments with a leverage of 1:21 or more).

And in conclusion of the review, a few words about the main altcoin, ethereum, which is recovering much faster than bitcoin. The BTC/USD pair has risen by about 40% over the past eight weeks, while ETH/ USD has grown by almost 120%. Most experts attribute this bull rally to the upcoming change in the consensus algorithm from Proof-of-Work (PoW) to Proof-of-Stake (PoS), which is expected at the end of September. The head of Galaxy Digital, Mike Novogratz, believes that the altcoin can reach the $2,200 mark even before this event. But according to ethereum co-founder Vitalik Buterin, the best is yet to come, after the network transitions to Proof-of-Stake. “Once the merger actually happens, I expect investor sentiment to improve,” he said. “In my opinion, […] the main impact on the ETH rate will be provided after the completion of the merger process.”

NordFX Analytical Group

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